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China risks slower growth without more market competition


© Reuters. FILEPHOTO: The Central Business District’s (CBD) buildings are illuminated at night in Beijing, China on April 15, 2021. Picture taken April 15, 2021. REUTERS/Tingshu Wang

BEIJING (Reuters – China is at risk of slowing growth if it doesn’t do enough to stimulate market competition. A report released Tuesday showed that China must allow the private sector to play a larger role in the economy, and there should be more cross-border flows.

A report from the U.S. think-tank the Atlantic Council and consulting Rhodium Group states that China’s market-oriented change will not be enough to keep its growth potential at 3% each year by the middle decade.

China’s economy has been slowing down since 2011, with its growth rate dropping to single digits, compared to its relatively large gains during the period after joining the World Trade Organization (WTO) in 2001. China now has a goal of growing its economy at least 6 percent by 2021. This is after it had achieved growth rates of 2.3% in the pandemic-hit year 2020.

The report stated that China made some progress in trade but has not yet cut tariffs at a level comparable to or lower than OECD countries. However, China’s recent policies are inconsistent with a market-oriented approach.

The report stated that Beijing’s crackdown this year on all private companies in technology and education has increased the possibility of greater state control over the future.

According to it, President Xi Jinping supports a strategy called “dualcirculation” that would make China less dependent on the rest of the world. This could also lead to a reverse of decades of closer economic integration.

According to the report, “President Xi’s promise to make the markets more decisive in his tenure starts is at risk,”

Reports state that ordinary Chinese have difficulty accessing overseas investment, which has caused an excess of capital in China and led to high levels of domestic capital.

Inadequate competition in the market and inefficiency can reduce productivity which will in turn lower gross domestic product. It also warned of “potentially trillions of dollars in five years”

Chinese reform supporters claim Beijing has been avoiding potential disruptive changes due to concerns about economic and social stability, and resistance from vested interest such as powerful state owned companies. Xi called them the champions and protectors of the economy.

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Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.